Ecommerce giant Amazon (AMZN) reports earnings after market close on Thursday, Oct. 25. Since the start of September, the stock has pulled back almost $300 from its all-time high of $2050.50. Despite the declines, shares are still up 48.75% year to date, outpacing the S&P 500’s (SPX) 1.6% return by a wide margin.

When AMZN releases its Q3 results, it is expected to report adjusted EPS of $3.12, up from $0.52 in the prior-year quarter, on revenue of $57.1 billion, according to third-party consensus analyst estimates. Revenue is projected to increase 30.5% year over year.

While there’s always a lot going on at the company, analysts and investors appear to have been honed in on three areas lately: ecommerce, cloud services and advertising, which the company has been rolling out in recent quarters.

Ecommerce Operations

In Q2 2018, North American ecommerce operations generated $32.17 billion in revenue, up 44% year over year. That segment also had operating income of $1.84 billion, the highest of all its segments (historically, Amazon Web Services had been the bigger profit driver.)

Revenue from international ecommerce operations was up 27% year over year to $14.6 billion. This division generated a loss of $494 million during the second quarter, smaller than the $724 million loss the year before.

Tomorrow’s report should include results from 2018 Prime Day, which AMZN rolled out to more countries this year. In the past, Prime Day sales have added some variability in top and bottom-line results. This year, AMZN made extensive use of its $13.7 billion Whole Foods acquisition and tied many of its Prime Day promotions in with the grocery chain.

On tomorrow’s call, investors might be looking for more information on future ecommerce plans as well. AMZN acquired online pharmacy PillPack this year and has also started to open cashierless stores, saying it has plans to eventually open as many as 3,000 locations in the U.S.

Amazon Web Services

Amazon Web Services, or AWS, the company’s cloud division, has long been a focus among investors and analysts as it has been the company’s most profitable from a margin perspective. AWS revenue increased 49% year over year to $6.1 billion, and generated $1.64 billion in operating income, more than half of the total $2.98 billion.

For a long time, AMZN had a big lead when it came to cloud computing. But over time, competitors have expanded to offer similar services. After reports from IBM (IBM) and Microsoft (MSFT) this week, AMZN’s report might provide a closer look at how the space continues to evolve.

Advertising

Advertising is a newer line of business for AMZN, but it’s one that many analysts think represents a sizable opportunity for the company. While a bulk of its focus has been on selling advertising for products and services bought and sold on its site, the company has been exploring different options as well. By 2020, several analysts believe AMZN’s advertising business will generate as much as $16 billion in revenue.

2018 Rally. Even after its recent pullback, AMZN, charted above, is still up 48.75% year to date. The stock’s increase has eclipsed both the Nasdaq 100’s (NDX, teal line) 9.33% return and the S&P 500’s (SPX) 1.66% return over the same time frame. Chart source: thinkorswim®by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Amazon Options Activity

Around AMZN’s upcoming earnings release, options traders have priced in a 5.7% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. With the stock trading at $1768.70, that indicates that traders are expecting just over a $100 move in the stock. As of this morning, implied volatility is at the 81st percentile.

In short-term options trading at the Oct. 26 weekly expiration, calls have been active at the 1790 and 1800 strike prices. Puts have seen a smattering of activity spread out across a range of strikes around the money, with heavier activity at the 1770 and 1780 strikes.

At the next several weekly expirations, there hasn’t been much activity that stands out. Further out at the Nov. 16 monthly expiration, the 1800 strike price has been active for both calls and puts, which is around the midpoint of where the stock has been trading for the past two weeks.

Overall, recent trading has been leaning towards the call side, but not by much. The put/call ratio during yesterday’s session was 0.756 with total volume of 123,003.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

This link takes you outside the TD Ameritrade Web site.

Clicking this link takes you outside the TD Ameritrade website to
a web site controlled by third-party, a separate but affiliated company.
TD Ameritrade is not responsible for the content or services this website.
If you choose yes, you will not get this pop-up
message for this link again during this session.

You are now leaving the TD Ameritrade Web site and will enter an
unaffiliated third-party website to access its products and its
posted services. The third-party site is governed by its posted
privacy policy and terms of use, and the third-party is solely
responsible for the content and offerings on its website. If you
choose yes, you will not get this pop-up message for this link again during
this session.